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  Index and financial product and method and system for managing said index and financial productUSPTO Application #: 20070203855Title: Index and financial product and method and system for managing said index and financial product Abstract: An index generally includes two index components. A first index component tracks a basket of futures contracts including at least two or more sets of futures contracts with different delivery months spread over a selected time period. The basket of futures contracts being rolled as certain futures contracts in the basket approach expiration. A second index component tracks a roll differential that indexes to a starting value periodically adjusted by a differential substantially equal in value to a delta between a first value of the futures contracts in the basket approaching expiration and a second value of futures contracts being rolled into a delivery period subsequent to the ending delivery period of the selected time period. The index is priced at least in part based on index values of the basket of futures contracts and the roll differential. Various financial instruments may be created to track the price of the index. (end of abstract) Agent: Stroock & Stroock & Lavan LLP - New York, NY, US Inventor: Mark Bradley Fisher USPTO Applicaton #: 20070203855 - Class: 705 36 R (USPTO) The Patent Description & Claims data below is from USPTO Patent Application 20070203855. Brief Patent Description - Full Patent Description - Patent Application Claims
CROSS-REFERENCE TO RELATED APPLICATIONS [0001]This application claims priority to U.S. Provisional Patent Application No. 60/778,167, filed Feb. 27, 2006, and U.S. Provisional Patent Application No. 60/811,241, filed Jun. 5, 2006, the entire disclosures of which are incorporated herein by reference. BACKGROUND OF THE INVENTION [0002]1. Field of the Invention [0003]The present invention relates to an index tracking one or more futures contract, various financial products that enables the sale, purchase, and/or trading of products linked to or tracking the index, and a method and system of creating and managing the index and related financial products. [0004]2. Description of the Related Art [0005]The New York Mercantile Exchange (NYMEX), Chicago Mercantile Exchange (CME), the Intercontinental Exchange (ICE), and other similar exchanges enable the trading of cash commodities and futures contracts for the same. Such commodities include, but are not limited to, agricultural, soft, and farm-based commodities (e.g., sugar, coffee, pork bellies, corn, and soy beans to name a few), precious metals (e.g., gold, silver, platinum, etc.), and energy based commodities (e.g., crude oil, natural gas, electricity, coal, etc.). While contracts for physical delivery of the underlying commodity can be purchased (and often are), futures contracts provide an opportunity for a buyer or seller of the commodity to enter into an agreement to buy or sell the commodity at a designated future time at a price agreed upon at the time the agreement is made-typically several months prior to the designated future time. As is well known in the art, futures contracts are standardized according to the quality, quantity, and delivery time and location for each type of commodity. [0006]One advantage of futures contracts is that they can be used to hedge other investments. A hedge is a transaction used to offset the risk of another related transaction. For instance, if one were a buyer of oil and desired to minimize the risk of future price increases in oil, a hedged position could be entered. To effect the hedge, the buyer would buy an oil futures contract at a certain price. When the time came to actually buy the physical oil, the buyer would then sell the futures contract. If the price of oil had increased, then the increased price of buying the physical oil at a higher price would be substantially offset by the gain made from buying and selling the oil futures contract. [0007]In some instances, it is desirable to enter into hedged positions for a certain period of time. For example, a company that knows it will be buying oil for a number of months may wish to create hedged positions for each of the months out a year or more. In other cases, the price of futures contracts can be used purely as an investment vehicle. For example, there are known commodities indexes. Such indices generally calculate an index price, much like the Standard & Poor's (S&P) index, for a weighted basket of commodities from a broad range of sectors. These indices can sometimes be purchased as an investment. However, unlike an investment in the S&P index, which trades equities or stocks, an investment in a futures-based index must be consistently rolled because futures contracts expire. For this reason, most commodities futures-based indices are operated like a bond fund of a specific duration. [0008]In managing such indices, the current futures month upon which the index is based is rolled to the next futures month. This rolling process generally occurs on a monthly basis. Because a sizable number of contracts must be rolled every month as compared to the open interest in the respective commodities every month, the pricing of the respective futures contracts may realize downward pressure in the current month which is being sold and upward pressure in the forward month being rolled into or bought. In a contango market (i.e., a market in which the forward futures prices are progressively higher than the current or spot month), the spread between the current month being sold and the forward month being rolled into is increased. This effect can be characterized as a negative roll. A negative roll means that the spot price of the commodities has to rise by at least the negative roll amount in order for the index to break even. A negative roll, thus, decreases the return of the index as an investment vehicle. Moreover, the negative roll in a contango market, which is exacerbated by the forward weighting of presently known commodity indexes such as those described herein, therefore, disadvantageously affects returns from investing such commodity indexes and decreases its suitability as a hedging vehicle. [0009]Moreover, in the trading of various commodities, currencies, debt instruments and other types of financial instruments, it is often desirable to take advantage of certain market conditions by creating hedged transactions or by speculating as to the price of one or more instruments relative to another. In a simple form, a spread (or straddle, as it is sometimes referred to) involves the simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months. While such spreads can be used to speculate on the difference in price between the two contract months or to hedge another transaction, the creation of spread transactions may result in numerous transaction costs depending on the number of spreads required to be entered and then exited. Furthermore, the ability to create the appropriate spread may be limited by the open interest or liquidity of the underlying futures contract. In fact, if open interest is low, additional costs may be realized in the creation of the spread. [0010]These highlighted disadvantages are exacerbated when more complex spread transactions are desired, such as when an investor desires to create a spread to track multiple commodity types or to track a particular industry, such as the energy or agricultural industries. Given the number of transactions that would be required to track an entire industry of commodities, for example, using individual spread transactions, the potential returns from such investments would be diminished in some cases to the point where the investments became impractical. Moreover, because it is known that commodity tracking indexes must be rolled, the prices of some or all of the futures contracts for those commodities that comprise the index may be artificially increased. This effect can also disadvantageously increase the cost of the index, thereby making the index a less effective investment vehicle. [0011]Consequently, there is a need in the art for a financial product that can reduce the effects of negative roll, while providing position flexibility in that, among other benefits, any number of forward futures contracts can be part of the product (e.g., an index based on 12-months of rolling futures contracts) and a potential investor can take either a long or short position on the product. There is also a need in the art for a financial product that depending on the manner in which the financial product is structured, may also permit long-term hedging applications and advantageously reduce market volatility, reduce roll slippage, and, in some instances, provide "real-time" mark-to-market pricing. SUMMARY OF THE EMBODIMENTS OF THE INVENTION [0012]The present invention in its various embodiments overcomes shortcomings in the prior art. In general, an index in accordance with an embodiment of the present invention includes at least one futures contract for each of a selected plurality of futures contract delivery times within a selected index period. The index period will generally include a first futures contract delivery time and a second futures contract delivery time. In order to maintain the selected index period, the futures contracts for the first futures contract delivery time are rolled into a third futures contract delivery time occurring after the second futures contract delivery time are bought. This "roll" is generally performed by selling futures contracts for the first futures contract delivery time and purchasing an equal number of futures contracts for the third futures contract delivery time occurring after the second futures contract delivery time. [0013]The index may include a second component, referred to herein as a cumulative rolling differential or "CRD," that tracks one or more differentials so as to reduce or minimize the effect of rolling the index. The CRD may be calculated by determining a delta between a first price for a selected number of futures contracts for at least one futures type that fall within a first period and a second price for a selected number of futures contracts for the at least one futures type that fall within an expiration month subsequent to a last expiration period of the at least two expiration periods. Thus, a benchmark value of the CRD may be adjusted using the calculated rolling differential value. Thereafter, the CRD may be combined with an index value or, in some embodiments, the index value may be adjusted by the differential value. This additional cumulative rolling differential component may be used as a standalone product or in combination with the index being presently described. As described further below, various financial instruments, such as, by way of non-limiting example, structured notes, ETFs, futures contracts, swaps, and other derivative contracts, may be based on, track, incorporate, or relate to the index and the cumulative rolling differential. [0014]In an embodiment, a method of calculating an index price for an index including a selected number of futures contracts for at least one futures type where the a selected number of futures contracts are spread among a selected time period including at least two expiration periods and wherein the selected time period is maintained by rolling the index, comprises: calculating a first index component price for the index for the selected time period by indexing values for the selected number of futures contracts for the at least one futures type included in the index; calculating the index price by adding the first index component price to a second index component price wherein the second index component price is initially set at a first value. In said embodiment, the index price is preferably recalculated at least at each roll period by recalculating the first index price by indexing then current values for the selected number of futures contracts for the at least one futures type included in the index. [0015]In another embodiment, a system for calculating an index price for an index including a selected number of futures contracts for at least one futures type where the a selected number of futures contracts are spread among a selected time period including at least two expiration periods and wherein the selected time period is maintained by rolling the index, comprises: a computer operative with programming to calculate a first index component price for the index for the selected time period by indexing values for the selected number of futures contracts for the at least one futures type included in the index; calculate the index price by adding the first index component price to a second index component price wherein the second index component price is initially set at a first value. In said embodiment, the computer is further programmed to recalculate the index price at least at each roll period by recalculating the first index price by indexing then current values for the selected number of futures contracts for the at least one futures type included in the index; calculating a rolling differential value by determining a delta between a first price for the selected number of futures contracts for the at least one futures type that fall within a first period of the at least two expiration periods and a second price for the selected number of futures contracts for the at least one futures type that fall within a forward expiration month subsequent to a last expiration period of the at least two expiration periods; adjusting the first value of the second index component price using the rolling differential value; and calculating the index price by combining the first index component price and the second index component price. [0016]In yet another embodiment, a financial instrument based on the index may include a first security component that indexes to a basket of futures contracts, the basket including at least two or more sets of futures contracts with different delivery months spread over a selected time period and wherein the basket of futures contracts is rolled as certain futures contracts in the basket approach expiration; a second security component indexes to a starting value periodically adjusted by a differential substantially equal in value to a delta between a first value of the futures contracts in the basket approaching expiration and a second value of futures contract being rolled into a forward delivery month; and pricing the financial instrument at least in part based on values of the first security component and the second security component. [0017]The terms "financial instrument" or "instrument," as used herein, generally refer to a financial product or investment that can be priced and sold on an exchange or on an "over-the-counter" basis, including but not limited to futures contracts, forward contracts, equities, bonds, exchange traded funds (ETFs), notes, other securities, swaps, other derivatives, indices, currencies, interest rates, other fixed income products, and options on any of the foregoing or combinations thereof. [0018]Additional features and advantages of the present invention are described further below. This Summary section is meant merely to illustrate certain features of the invention, and is not meant to limit the scope of the invention in any way. The failure to discuss a specific feature of the invention, or the inclusion of one or more features in this Summary Section, should not be construed to limit the invention as claimed. BRIEF DESCRIPTION OF THE FIGURES [0019]Embodiments of the invention will be described and shown in detail by way of example with reference to the accompanying drawings in which: [0020]FIG. 1 is a depiction of an embodiment of a commodities index based on the present invention; Continue reading... Full patent description for Index and financial product and method and system for managing said index and financial product Brief Patent Description - Full Patent Description - Patent Application Claims Click on the above for other options relating to this Index and financial product and method and system for managing said index and financial product patent application. 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